EAC Report: Development Aid

Baroness Royall of Blaisdon Excerpts

Monday 22nd October 2012 Lords Chamber

[Lord Lawson of Blaby]

My Lords, I hope that the right reverend Prelate will forgive me if I do not address the points he made in his contribution to the debate. We are strongly constrained for time, which unfortunately prevents us having a debate in the real sense of the word.

As the first member of the Economic Affairs Committee of your Lordships’ House to speak after our chairman, I start by paying a large tribute to his outstanding chairmanship. He pointed out that in this tricky area we produced an absolutely unanimous report. I think that the main reason for our unanimity, if I may say so, was because the weight of evidence that we received was so overwhelming—evidence that noble Lords who have spoken so far seem to regard as of no account. However, his outstanding chairmanship also played a part, and I thank him.

This country’s aid programme stands out in at least three ways. First, as my noble friend said, we give more in overseas development aid than any country in the world with the sole exception of the United States. Secondly, while in order to achieve sadly necessary fiscal consolidation, all other public expenditure programmes are being either frozen or cut back, the UK overseas aid budget is roaring ahead—at a time when most other countries are slowing down on this front. Thirdly, we are doing this explicitly in pursuit of a pledge to meet the 42 year-old United Nations target of spending 0.7% of our GNP on aid by next year; and, unlike any other country in the world, and in contrast to all other areas of public expenditure in this country, we have said that we will introduce legislation to bind this and all future UK Governments to maintaining this level of spending in perpetuity.

As my noble friend Lord MacGregor pointed out, the principal conclusion of our report, although not the only one, was that, far from making it a legal obligation, we should abandon this antique and wholly arbitrary target altogether. He admirably set out why we unanimously reached that conclusion. In particular, he pointed out how the 0.7% target prioritises the amount spent rather than the results achieved, and thus makes the achievement of the spending target more important than the effectiveness—if any—of the programmes. The Government’s pathetic response to our report was that the 0.7% commitment was a solemn pledge by all three political parties, and that is that.

[Baroness Royall of Blaisdon]

Hear, hear.

[Lord Lawson of Blaby]

I very much hope that the Minister will do better than that this evening, even if the Leader of the Opposition is unable to do so.

In my rather long political experience, when all three political parties are agreed on a policy, it is nearly always mistaken—as it is in this case. There is a very clear reason why that should be. The existence of all-party consensus ensures that the policy in question is never properly debated or scrutinised. If the evidence shows that a policy is mistaken, it should be abandoned: it is as simple as that.

I do not question for a moment that the policy is well meant, or that the intentions behind it are noble. However, as we all know, the road to hell is paved with good intentions. Policies need to be judged by their outcomes, not by their intentions. I cannot stress this too strongly. I believe that all of us on all sides of the House are well intentioned, but that does not prevent us frequently disagreeing strongly with the proposals of those who sit opposite us, on the grounds that the consequences of what they propose would be damaging. For example, I am sure that Mr Blair had the most high-minded intentions when he took this country to war with Iraq. However, that does not mean that he was right to do so. It is outcomes, not intentions, which matter.

I return to the proposal that the 0.7% aid target should be abandoned. I suspect that we might not have felt quite so strongly about this had there not been serious doubts about the efficacy of development aid more generally. To quote the cautious conclusion of our report,

“the evidence that aid makes a contribution to growth in recipient countries is inconclusive”.

We did not go deeply into the question of why development aid does not, on balance, promote economic development, although we did point to the malign relationship between aid and corruption, which has already been mentioned in this debate. But corruption—important as it is—is only part of the story. The real issue is more fundamental than that.

A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson, which unfortunately was not published until after we had completed our inquiry. They say that what the nations that fail,

“all share is extractive institutions. In all these cases the basis of these institutions is an elite who design economic institutions in order to enrich themselves and perpetuate their power at the expense of the vast majority of people in society”.

In parenthesis, my noble friend Lady Falkner reminded us earlier of my old friend, the distinguished development economist the late Professor Peter Bauer, who many noble Lords will recall was a stimulating Member of this House. He used to say that the principal effect of official development aid was to transfer money from the poor in the rich countries to the rich in the poor countries. That is far too true for comfort.

Be that as it may, Acemoglu and Robinson continue:

“The idea that rich Western countries should provide large amounts of ‘developmental aid’ in order to solve the problem of poverty in sub-Saharan Africa, the Caribbean, Central America and South Asia is based on an incorrect understanding of what causes poverty. Countries such as Afghanistan are poor because of their extractive institutions—which result in a lack of property rights, law and order, or well-functioning legal systems and the stifling dominance of national and, more often, local elites over political and economic life. If sustained economic growth depends on inclusive institutions, giving aid to regimes presiding over extractive institutions cannot be the solution”.

That must be right. But I would myself put it more simply. The crucial requirement for economic development is a variant of the separation of powers: in this case, a separation between the political and the economic spheres.

Without that separation, if the route to individual wealth is via political office, government becomes a means of extracting wealth for the benefit of those in government, at the expense of the governed; and the notion of facilitating economic development or growth by providing conditions in which the governed can escape from poverty by their own efforts, outside the political process, is conspicuous by its absence—hence the futility of development aid.

I stress that I am not speaking here about disaster relief, although even in the area of disaster relief, the reality is all too frequently far from the intention, as Linda Polman has devastatingly documented in her book War Games: The Story of Aid and War in Modern Times..

The record of development aid, however well intentioned— and I admit that it is—is as disappointing as it is because it does not and cannot achieve the indispensable political and institutional requirement of a separation between the political and economic spheres in the recipient countries. Without that, development aid is futile; with it, development aid is unnecessary. Indeed, official development aid is likely to be worse than futile, and actively counterproductive overall—even though individual projects may bring useful if minor benefits, such as better paid schoolteachers and thus, we hope, better schools.

This is because the principal consequence of the provision of official development aid to Governments in the developing world is to boost the already excessive dependence on government and, more specifically, to reinforce the concentration of political and economic power—the very reverse of what history has shown is required for successful economic development, without taking into account the extent to which aid promotes corruption in the recipient countries; a well documented phenomenon.

It is, of course, important that we do nothing actually to impede the economic development of what used to be known as the third world. That means, in particular, putting no barriers in the way of their exports to us. But if we seriously wish to use taxpayers’ money to help the people of the developing world, the best thing we can do is probably to spend a fraction of what we are currently mis-spending on development aid on educating the future leaders of those countries in our best schools and universities. It is only they who may, in future, be able to effect the political and institutional transformation that their countries so badly need.

--- Later in debate ---

[Baroness Royall of Blaisdon]

My Lords, I thank the noble Lord, Lord MacGregor, for this welcome opportunity to discuss development and for his excellent introduction to the debate. I warmly welcome the committee’s finding that DfID enjoys an outstanding reputation internationally as an effective aid agent. This is something to be proud of but, of course, my noble friend Lord Boateng is right when he speaks of the need for better cross-government co-operation in relation to aid. In relation to better working with the British Council, for example. I agree with my noble friend Lord Hollick that staff within DfID need to be retained, as far as possible, in order to keep that vital expertise. I take this opportunity to pay tribute to the wonderful NGOs in this country, such as Save the Children, Christian Aid, Oxfam and so on, which work in partnership with DfID on the ground, really delivering for the poorest people of this world.

First and foremost, our contribution to fighting poverty and human rights abuses is a moral imperative. However, aid is also effective and provides the soft power mentioned by the noble Lord, Lord Hannay. Critics such as the noble Lord, Lord Lawson, say that aid does not work. They question its effectiveness and impact on development and growth. This is not my view of aid and it is not Labour’s view. In fact, a number of civil society organisations have labelled it a view that is out of tune with public opinion, out of touch with economic reality and stuck in the 1980s. We are all indebted to the noble Lord, Lord Stern, for his clear explanation of the effectiveness of aid. Aid brings about extraordinary change in poor countries.

According to UNICEF, over the past 20 years, development aid has meant that 4 million fewer children will die this year, 33 million children have had the chance to go to school for the first time and 4 million more people have access to life-saving drugs for HIV/AIDS. Over the next years, the UK’s contribution to the Global Alliance on Vaccines and Immunisations will ensure that 80 million children can be immunised world wide, saving an estimated 1.4 million lives. Health and education contribute to growth. Aid creates the conditions for economic growth. In one year, we helped build or repair 4,500 kilometres of road. In the years 2012-15, DFID will help 77.6 million people access formal financial services. Aid helps to secure peace and strengthen good governance. The UK’s extensive security and development assistance to Sierra Leone over the past decade has helped end its civil war and stabilise and rebuild the country. Over the next three years, UK aid will help 44.9 million people participate in elections. However, aid does not just work abroad—it works for us too. Security, trade and migration mean that it is also in Britain’s national interest and, as the noble Lord, Lord Crisp, said, health is a shared interest. Health in developing countries can be a catalyst for innovation.

The committee recommends putting in place an early exit strategy from the Indian development aid programme. The committee’s recommendation ignores the level of need and inequality that remains in India. Some 456 million people in India, which is equivalent to one-third of the world’s poor and more than all of sub-Saharan Africa combined, live on less than $1.25 a day. DfID staff in India are doing a fantastic job.

I disagree that aid is a perverse incentive to poorer states. I was in some of the poorer states myself this year and I talked to small farmers who have been helped through, for example, DfID’s support for the Orissa Modernising Economy, Governance and Administration programme. This programme has worked with farmers, helping them to get a better price for their products and to find non-farm products by linking them with the market. Their families used to survive on less than $1.25 a day; now they have become entrepreneurs, providing a service to the community and providing paid jobs for people living in the villages, and they are helping the local economy to grow. They are being, as it were, a catalyst for private investment. DfID is also working with the Government of Orissa and WaterAid, providing technical expertise for much needed sanitation projects in areas where only 10% of people have access to a lavatory and a tap connection. This help with sanitation will mean that girls will go to school. It will change their lives and help them to contribute to the economy.

Of course, value for money is important and, as part of our policy review process, we are considering the future of our bilateral development programme, including aid to India. However, any decision that we make must take into account our commitment to reducing global poverty and the need to ensure that the poorest communities are not adversely affected.

I was going to say a lot about the European Commission as the largest multilateral donor in the world and a crucial actor in developing countries and peripheral fragile states. I believe that the European aid programme is a good one. It can do more and better but we must work with it to ensure that it does precisely that.

I come to the most controversial issue—the committee’s rejection of the target of spending 0.7% of GNI on overseas aid. I must part company with my noble friends who sit on the committee because I believe that they and the committee are wrong. I was pleased to see the Government’s firm response to this particular recommendation and I am delighted and relieved that they have retained their commitment. Labour is committed—it is our party policy—to ensuring that the 0.7% target is enshrined in law. It was a target last recommitted at the G8 meeting at Gleneagles. It would ensure that future changes to the budget, irrespective of which party was in power, were permanently related to the economic state of the country. I say to the noble Lord, Lord Bates, that, when in power, perhaps we did not get as far as 0.7% but I could defend—strongly and at length—what we did in power to help the poorest people of the world, especially in terms of health and education. I am very proud of what we did.

I think that my noble friend Lord Lipsey—who is my friend and is noble—is far too cynical about our policy and the Government’s policy on the issue of the 0.7%. I do not think that the policy was reached as a result of cynical opportunism; I think that it was reached because it is absolutely the right thing to do in the world today—a world which is still far too unequal but one which can become more equal as a consequence of the 0.7% commitment.

The choice that some people make between quality and quantity is a false one. According to evidence from Christian Aid, in countries where the target is reached, the discussion has shifted away from the amount given and towards the way in which the aid is spent. In addition, it has been shown that predictability is a key determinant of impact, supporting longer-term planning in partner countries. The organisation ONE has estimated that meeting the 0.7% target would, for example, put 15.9 million children in school and provide more than 80 million children with vaccines, saving an estimated 1.4 million lives. I could go on but time is short.

As I said, I am delighted that the spending commitment is supported by the Government, and, as the noble Baroness, Lady Jenkin, said, it is also supported by the people of this country. Therefore, I urge the Government to honour their commitment and enshrine it, either by bringing forward the Bill or by supporting Mark Hendrick’s Private Member’s Bill.

Now is the time for big global economic and social change. We want growth which is sustainable, companies that are both profitable and responsible, meaningful agreements on fair trade and climate change, universal access to free healthcare, compulsory education and social protection, global human rights with no exemptions for our allies, and women’s rights at the heart of conflict resolution.

It is right, especially in these difficult times, that we make sure that aid gets to those who need it most and that it delivers maximum value for money. That is why we have said that we would not reverse the Government’s decision to cut the projected aid budget as a consequence of the reduction in GNI—a cut, I hasten to add, that does not go against the 0.7% target.

I agree with the committee’s recommendations on the need to tackle corruption. This is vital. DfID is already doing important work in this area but we need to do more. That is why Labour is working on a new anti-corruption plan for the UK and a strategy for building a new anti-corruption coalition around the world that will identify tangible action that can lead to real change.

However, we cannot ignore our role and that of other rich countries in facilitating corruption. We need to do more to fight the tax dodgers who steal from the poorest people and the poorest countries in the world. Developing countries lose approximately $160 billion annually as a result of tax dodging by multinational companies alone, according to Christian Aid. The better developing countries get at collecting revenues themselves, the less aid they will need from us; and we can help them along the way.

Development aid has made a real and lasting impact in reducing poverty, spreading human rights and fostering growth across the world, and it continues to do so. Our aim is to eradicate aid dependency; and we could do more, and better. We want to move to a world where aid is no longer necessary, but the way to do that is not by abandoning our spending targets at a time when millions are in desperate need. We must continue to defend the crucial role that aid plays in addressing poverty and misery across the world.